1990s brought signifcant program changes

During the last decade in the 20th century, two farm bills were enacted. The latter in 1996 produced a “no net cost peanut program,” the last year of which was eliminated by the 2002 farm bill, signed into law on May 13, 2002.

In the 1990s two international trade agreements proved to be, as some of us had predicted, disastrous to the peanut program. Since trade agreements had not taken shape by 1991, the NPGG continued to get support from shellers for extending the program.

However, the two peanut product manufacturer organizations continued to insist on varying degrees of changes.

The American Peanut Product Manufacturers Inc., APPMI, gave qualified support to the program while smaller manufacturers belonging to the Peanut Butter and Nut Salters Association opposed the program and called for an end to quotas and price support.

The Senate and House Agriculture Committees passed a bill (proposed 1990 Peanut Title), drafted and submitted by the NPGG that resulted from meetings with shelters and manufacturers and was subsequently enacted into law. The basic parts of the marketing quota and price support provisions remained intact.

Of more significance, in the early '90s negotiations continued and intensified both the Uruguay Round of GATT (General Agreement on Tariffs and Trade) and NAFTA (North American Free Trade Agreement). At first, the NPGG took a strong position against including peanuts in the trade agreements.

Later, having been convinced by congressional friends that peanuts must be included, the NPGG set an ambitious agenda to secure as many safeguards as possible. It would soon become apparent that the agricultural leadership in Congress could not solve our problems with trade agreements.

Some congressional supporters helped while others did nothing. The agreements were in the hands of trade representatives appointed by the White House who were not responsible to Congress.

Peanut producers had benefited since 1953 from the protection of Section 22 of the Agricultural Adjustment Act, which limited annual imports of peanuts to 1.7 million pounds except in years of extreme U.S. crop shortfall.

Knowing that Section 22 was on the way out, the NPGG tried not only to secure safeguard provisions in the trade agreements proper but also to have helpful provisions included in the legislation to implement the agreements.

NAFTA became fully effective Jan. 1, 1994, and the World Trade Agreement, GATT, became effective April 1, 1995. The NPGG secured passage through both the House and Senate Agriculture committees of eight key safeguards relating to peanut imports.

The U. S. Trade Team, however, later removed all of the provisions, reportedly with the blessing of the House Ways and Means Committee. It was understood that similar housecleaning had been performed on legislation sought by other U.S. farm commodity groups.

Because of grower leadership efforts, however, two key provisions were included in NAFTA. First, the agreement specifies that imported peanuts and peanuts in imported peanut butter must meet U.S. Marketing Agreement Standards.

The U.S. Trade Team later expanded that provision to apply to imports from all countries.

Second, a provision included in NAFTA required all peanuts and peanuts in products imported from Mexico be grown and harvested in Mexico. That provision was added to prevent transshipment of peanuts produced elsewhere through Mexico into the United States.

The trade agreements substituted protective tariffs and quotas for import restrictions previously in effect under Section 22, but the quotas and tariffs imposed were temporary. For NAFTA, the period was 15 years. For GATT, the initial period was six years, followed by other periods of continued phasing out import barriers.

The effects of the trade agreements were both immediate and long range. Cheaper imported peanuts from countries with low production costs began to infiltrate the U.S. market as soon as permitted.

Each year U.S. users have acquired the allotted amount of imported peanuts permitted by the minimum access provision of the trade agreements. The level of such imports reached about 136,000 tons, farmers stock equivalent, by 2000 and apparently will remain at that level until the World Trade Organization completes negotiations on the successor agreement to the Uruguay Round of GATT.

1996 farm bill

The influence of the trade agreements on the Peanut Title of the 1996 Farm Bill was substantial, but the program cost factor again brought great pressure on producers and their leaders.

In order to reduce costs, a number of changes were made in the program, almost all of which reduced quota peanut producers' incomes. The national poundage quota floor, 1.35 million tons, was removed; the quota support price was reduced 10 percent; and the provision for quota support adjustments to offset cost of production increases was eliminated, thereby freezing the support rate for the life of the farm law.

Sharp reductions also were made in allowances for disaster transfer of additional peanuts and carry forward of quota undermarketings. A new provision was added to provide transfer of quota pounds across county lines within a state.

Also, for the first time a number of compliance steps were added that offset pool losses and assured a “no net cost” program.

The cost-cutting features of the 1996 law functioned to eliminate program cost, but the changes exacted a heavy toll on quota producer income. For the first five crop years, the new “no net cost” program appeared to quiet much of the criticism.

A major program loss occurred in 1999 following huge over purchases of additional peanuts by shellers for domestic edible use in 1998. The loss of some $33 million resulted from the abuse of the “buy back” program by shellers.

Growers had taken major hits under the new law and were responsible for underwriting unexpected costs after implementing primary cost assurance safeguards. The combination placed heavy pressure on quota producers.

However, quota producers again voted in the 1997 referendum by a heavy margin to retain the program through 2002.

Peanut producers took their obligations under the “no net cost” program seriously. Quota peanut producers used caution to keeping quota peanuts out of the loan to avoid program losses on quota loan inventory. Although the program was functioning smoothly in the late '90s, some undercurrents were developing that proved to be damaging to national producer unity.

Another organization of state peanut producer groups was formed in Georgia, Florida and Alabama, consisting of associations belonging to the National Peanut Growers Group. Although the purposes of the new organization reportedly were different from the NPGG functions, there was sure to develop some diminished degree of team effort on future issues.

Meetings in 2001 reportedly occurred between representatives of these grower associations and peanut product manufacturers. The members of the new organization were the first NPGG members to react favorably to the peanut market loan concept.

The increasing volume of imported peanuts permitted by the trade agreements served to further solidify sheller opposition to the traditional program. There appears to be little doubt that processor influence played a significant role in initiating the move toward a peanut market loan.

The low loan level, a market loan trademark, was attractive to product manufacturers and also would solve one of the big problems for shellers in making U.S. shelled peanuts competitive with lower priced imported peanuts.

By the time the National Peanut Growers Group began its discussions on the new farm bill in 2000, it appeared there was agreement to continue support for an inventory supply, price support concept. That, however, was not the case, as NPGG member associations in the Southeastern U.S. production area later aligned themselves with processors in support of the market loan.

Still later, the quota buyout issue was tied to the market loan and further divided support among producers and quota holders.

In 2001 the National Peanut Growers Group reached a consensus on its legislative policy position for farm bill negotiations, but the agreement reportedly was undermined by some of their own members who united with the Sheller/Manufacturer coalition.

There is little doubt that this development paved the way for enactment of the market loan for peanuts. A number of peanut state congressmen appeared relieved, if not extremely pleased, that a part of the grower associations had joined with shellers and product manufacturers to support the market loan. Their eagerness to secure final passage of the market loan was clear.

The NPGG for years vigorously opposed converting peanuts to a target price program. The mechanics of the target price were similar to the market loan and were not adaptable to peanuts.

Apparently, little thought was given to that potential problem prior to enactment of the Farm Security and Rural Investment Act of 2002. Numerous questions remain unanswered as the 2002 crop progresses toward harvest. With few guidelines available for producers and USDA Regulations at mid-August reportedly nowhere in sight, there is certain to be a substantial degree of confusion and frustration at marketing time, not to mention sharp reduction in farm revenue from those fortunate enough to have secured crop financing.

All signs point toward increasing usage of imported peanuts in the future.

One of the big shocks for grower leadership was the apparent total disregard for program cost by the congressional committees and later by a large segment of the Congress. Although producer income will be down for former quota producers, the cost of the program was projected by the Congressional Budget Office to total about $4.9 billion over a 10-year period, compared to the previous “no net cost” program.

Key House Agriculture Committee staff members attending the annual meeting of the Southwestern Peanut Growers Association on July 28, 2000, were still emphasizing the importance of maintaining the “no net cost” program.